Organization, Nature of Business and Basis of Presentation

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

Organization, Nature of Business and Basis of Presentation

Note 1. Organization, Nature of Business and Basis of Presentation

Organization

Creek Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables (known collectively as “legacy operations”). All legacy operations were discontinued during 2021. The Company operates an eCommerce site selling pop culture memorabilia and will evaluate whether to continue the eCommerce operations in 2022.

Nature of Business

Cryptocurrency Mining

We currently generate substantially all our revenue through cryptocurrency we earn through our mining activities, which we may strategically hold or sell at beneficial prices and times. We currently mine and hold Bitcoin exclusively. We plan to hold our mined Bitcoin in excess of our operating and capital expenditure needs until the next halving event (expected to occur around March 2024), which we believe will lead to an increase in the market price of Bitcoin, other than for such sales of Bitcoin as determine to be necessary to fund operating or capital expenses, such as our purchase commitments for additional miners from Bitmain. While we do not have the intention of mining any other cryptocurrencies in the near future, we may expand our mining operations to include additional crypto assets if, after evaluation of the financial merits of such crypto assets based on a number of factors, including the anticipated profitability and price stability of such crypto assets and the ability and cost of our existing miners to mine for such digital assets, we determine that such additional crypto assets are reasonably likely to result in better margin than Bitcoin. Our mining operations commenced on October 24, 2021. We use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support the Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing” power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according to the “hashing” capacity each miner contributes to the mining pool.

Mining Equipment

All of the miners we operate were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency rewards. In October 2021 we put 156 Bitmain S19J Pro miners into production, and added another 84 into production in December 2021. In March 2022 we received 270 Bitmain S19 miners but as of March 31, 2022 they had yet to be placed into production. As of March 31, 2022, we had 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity in production, we had received 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity not yet placed into production, and had deposits for an additional 870 miners with 111.1 Ph/s hashing capacity to be delivered in 2022 as follows:

● 270 Bitmain S19J Pro (100 Th/s per miner, total 27 Ph/s hashing capacity) delivered in April 2022

● 600 Bitmain S19XP (140 Th/s per miner, total 84 Ph/s hashing capacity) delivery expected July through December 2022

After the delivery of the miners above we will have a total of 1,380 miners with 159.3 Ph/s of hashing capacity.

The purchase commitment for undelivered miners as of March 31, 2022 totals $9,378,300, including $6,203,100 paid as deposits as of March 31, 2022, and the remaining $3,175,200 due to be paid monthly from the proceeds of the sale of earned Bitcoin during the year ending December 31, 2022 or, if necessary or advisable, with earned Bitcoin to the extent that the vendor accepts Bitcoin as a form of payment or from additional capital raising, which may be debt or equity, or a combination thereof pursuant to a private or public offering, with the last payment scheduled to occur on November 10, 2022.

Mobile Data Centers

We utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas to power a mobile turbine that produces electricity that, in turn, is used to power our miners.

Mining Results

The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:

	Quantity of Bitcoin			US$ Amounts
Balance September 30, 2021		—		$	—
Revenue recognized from cryptocurrency mined		6.7			369,804
Mining pool operating fees		(0.1	)		(7,398	)
Impairment of cryptocurrencies		—			(59,752	)
Balance December 31, 2021		6.6		$	302,654
Revenue recognized from cryptocurrency mined		8.3			343,055
Mining pool operating fees		(0.2	)		(6,868	)
Impairment of cryptocurrencies		—			(106,105	)
Balance March 31, 2022		14.7		$	532,736

Factors Affecting Profitability

Our business is heavily dependent on the market price of Bitcoin. The prices of cryptocurrencies, specifically Bitcoin, have experienced substantial volatility. Further affecting the industry, and particularly for the Bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving”. For Bitcoin the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9, 2016 at block 420,000; and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is anticipated to occur in March 2024 at block 840,000, when the reward will be reduced to 3.125 Bitcoin per block. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted. Many factors influence the price of Bitcoin, and potential increases or decreases in prices in advance of, or following, a future halving is unknown.

We plan to hold our mined Bitcoin until the next halving event (expected to occur around March 2024), which we believe will lead to an increase in the market price of Bitcoin, other than for such sales of Bitcoin as determine to be necessary to fund operating or capital expenses, such as our purchase commitments for additional miners from Bitmain.

Government Regulation

Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.